Hungary's stocks, forint fall after poor trade data

PolyaLesova

NEW YORK (MarketWatch) -- Hungarian assets came under selling pressure Thursday after data showed a sizeable trade deficit and a plunge in exports, reinforcing concerns about the fragile state of the Eastern European economy.

In Budapest, the benchmark BUX stock index fell 2.8% after the national statistical office reported that Hungary posted a trade deficit of 191.6 million euros in January. In comparison, the deficit stood at 79.4 million euros a month earlier.

The euro value of Hungarian exports fell by 31% in January, while that of imports dropped by 29% compared with a year ago, the statistics office said in a statement posted on its Web site.

About 84% of Hungary's exports go to the European Union, which is mired in its own deep recession.

The data report "indicates what's happening all over the world -- that export markets are drying up pretty quickly," said Nigel Rendell, senior emerging markets analyst at RBC Capital Markets in London. "Hungary is a pretty open economy, so if there is no demand in Western Europe," it suffers.

"The speed of the fall is what surprised a lot of people," Rendell said. "The deficit was twice what markets had anticipated."

Hungary, a member of the E.U. since 2004, has been one of the countries in Eastern Europe hardest hit by the global economic crisis. Its gross domestic product contracted by 2.3% in the fourth quarter of 2008.

Last November, Hungary was bailed out by several multinational institutions. It received a $25 billion financing package to which the International Monetary Fund committed $15.7 billion, the E.U. -- $8.4 billion and the World Bank -- $1.3 billion.

Forint, stocks under pressure

The turmoil has precipitated a sharp fall in Hungarian asset prices. The MSCI Hungary stock index has tumbled 40% this year, making it the worst performer among major emerging markets. The U.S. dollar has surged 24% against the forint this year and the euro has gained 13% against the currency.

After the release of the trade data Thursday, the Hungarian forint fell sharply. However, the forint rebounded later in the day. The euro was last down 1% to 298.10 against the forint after earlier hitting an intraday high of 308.35 forint.

Analysts expect the forint to extend its decline in the coming months.

"The trend is definitely down," Rendell said. "With no sign of any improvement in the global economy or domestic economy in Hungary, the only adjustment you can really have is through a weaker exchange rate."

The forint may fall to as low as 330 or 340 against the euro, according to Rendell.

Earlier this week, the forint got a small boost after the Hungarian central bank said that it will intervene to defend the currency.

"The monetary council will make efforts to bring financial market developments back into line with the outlook for the real economy," the central bank said in a statement on Sunday after its extraordinary meeting over the weekend.

"To this end, the bank intends to encourage banks to increase their recourse to its forint and foreign currency liquidity-providing instruments introduced recently, will soon be converting E.U. [European Union] funds in the market and stands ready to use the full range of monetary policy instruments at its disposal," it said.

Win Thin, senior currency strategist at Brown Brothers Harriman, expects the euro/forint to retest the recent high of 317.28 soon despite the central bank's vow to defend the exchange rate.

"We think it would be extremely foolish to hike rates now to defend the currency since a) the economy is already likely to contract 5% this year and b) interest rate differentials aren't really a big factor right now in foreign exchange markets," Thin said in a research note this week.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.